Close to Retirement? Don't Miss These Dates and Deadlines!

I’m turning 60 next year and keep hearing about different age-related requirements and milestones. For example: FRA? RMD? And when can I start withdrawing money from my 401(k) without a penalty? I want to make sure I don’t miss something important. Can you help?

—A Reader

Dear Reader,

Although a lot of us may try to forget our age as the years go by, when it comes to reaping the financial rewards of getting older, you're wise to keep certain age-related milestones top of mind. But as might be expected for the rules and regulations surrounding retirement withdrawals and government benefits, it can get complicated. Therefore, it's important to understand what you need to do—and when—to help assure you don’t make a costly mistake and that you get all the economic benefits you're entitled to.

Here's a checklist of basic ages to keep in mind and the significance of each.

AGE 55: If you have assets in an employer-sponsored qualified retirement plan such as a 401(k) and leave your job (called separation of service), you can take a distribution without paying the 10 percent penalty for early withdrawal. You will, however, pay income taxes on the money.

AGE 59½: At this age, you can take distributions from your qualified retirement plan or traditional IRA without penalty. Once again, you will pay income taxes on the earnings or any contributions that were tax deductible. If you have a Roth IRA and have held it for five years, you can withdraw these earnings both penalty- and tax-free.

AGE 62: This is the earliest date you can begin taking Social Security benefits (unless you are disabled). But realize that if you do, your payout will be permanently reduced by approximately 25 percent. (And if you're still working and earn beyond a certain limit, benefits are further reduced on a temporary basis.) So before you decide to take Social Security at this age, consider how much more you could make over time by waiting.

AGE 65: At 65 you're eligible for Medicare—a very significant milestone considering the high cost of health insurance and medical care. If you're already receiving Social Security, you're automatically enrolled in Parts A and B. There's nothing you need to do. If not, you can apply for both Social Security and Medicare at the same time. However, if you prefer to delay Social Security, you can apply for Medicare alone—ideally, three months before the month you turn 65. You can enroll for Medicare online, in person or by phone. (Note: You can choose to delay Part B coverage if you are covered by an employer plan.) Also note that once you are on Medicare you are no longer able to make contributions to a Health Savings Account.

AGES 66-67: This is when you reach what the Social Security Administration calls your "full retirement age," or the time that you can begin receiving "full" benefits. For anyone born in 1943 or later, FRA ranges from 66-67 depending on the year you were born. It's important to note, however, that if you delay receiving Social Security beyond your FRA, your benefits will continue to increase until you reach age 70. When you’re ready to apply, there's an online application at SSA.gov.

AGE 70: As mentioned above, Social Security benefits don't increase beyond this age. So if you haven't already, file for your benefits now.

AGE 70½: This is the age when you're required to begin taking money from tax-advantaged retirement plans such as a traditional IRA, 401(k), Roth 401(k) 403(b), SEP, SIMPLE or 457 plan. The minimum you must withdraw—your Required Minimum Distribution or RMD—is determined by a formula based on life expectancy and the amount you have in tax-advantaged accounts. Your tax professional can help you determine your RMD or you can use Schwab’s RMD Guide. You absolutely must take your first RMD by April 1st of the year after you turn 70½ or face a hefty 50 percent PENALTY! And if you wait until that date, you must then take your second RMD by December 31st of that same year. So it's really important to pay attention to this deadline. On the plus side, you don't have to take an RMD from a 401(k) if you're still working, and never from a Roth IRA.

Being mindful of age-related dates and deadlines is only part of the picture. You also need to sit down and review your own financial picture—retirement accounts, Social Security benefits, other sources of income—and create a retirement budget and withdrawal strategy. It's not only about missing something; it's about taking every opportunity to secure your financial future.

Have a personal finance question? Email us ataskcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiriescontact Schwab.

Important Disclosures

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The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.

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